McDonald’s chief executive Jim Skinner’s 2008 compensation package of $13.6 million—including a base salary of $1.3 million and $4.6 million in bonuses—was reportedly up 73 percent compared with the prior year. But the quick-service executive was one of few in the industry to see such a generous pay raise.
More typical were executives like Harald Herrmann, president and chief operating officer of Yard House USA Inc., based in Irvine, Calif., who along with chief executive Steele Platt and executive chef Carlito Jocson, took a pay cut in the first quarter this year after announcing a companywide freeze on merit pay increases.
From the top corner office to hourly staffers, compensation growth throughout the restaurant industry continued a downward trend in 2008—and the pay raise outlook for 2009 looks even worse, according to a recent survey of pay and benefits compiled by People Report, a Dallas-based human resources consulting firm.
Released in August, the annual survey of 50 restaurant chains across the country looked at compensation trends and benefits among employees at all levels. Overall, salary levels in 2008 increased at a lower rate across most positions, putting many industry employees in negative growth after considering inflation, said Victor Fernandez, a senior analyst and compensation specialist for People Report.
On average, base pay for chief executives was up 7.01 percent, but annual bonuses for those top executives were down 41 percent on average in 2008, resulting in a 0.5-percent decrease in cash compensation, according to the survey.
Among corporate office staff, merit pay increases averaged 3.7 percent, a drop from the jump of 4 percent reported in 2007 and the 4.7-percent increase of 2006.
Restaurant managers saw an average merit increase of 3.4 percent, a considerable drop from an average of 3.9 percent in 2007 and 4.6 percent in 2006.
Considering an estimated 3.8-percent increase in inflation in 2008, corporate office staffers are averaging a 0.1-percent drop in real-term salary, and restaurant managers were down 0.4 percent, the report found.
“High unemployment has had an impact because the pressure is not there for salary increases, as has been in the past,” Fernandez said.
On the upside, a higher percentage of corporate office employees received merit pay increases in 2008—86 percent, compared with 84 percent the prior year—though the number of restaurant managers that received base pay increases remained flat at 78 percent.
Overall, almost all of the companies surveyed gave merit pay increases last year—98 percent—despite the weakened economy, cutbacks on restaurant growth and dwindling sales.
When looking for ways to reduce costs in a recession, “compensation tends to be the lever they do not want to pull,” Fernandez said. “You want to keep people happy and performing well.”
And it wasn’t just the folks in the top offices getting a raise.
According to the survey, only 66.5 percent of corporate executives saw their base salaries increase in 2008, though more than 90 percent of exempt corporate managers got a raise, as did 87.9 percent of nonexempt corporate office employees.
Looking at what was budgeted for pay increases in 2009, most companies planned to give raises, but at a dramatically lower rate.
Corporate executives are expected to receive an increase of only 1.7 percent on average this year, the survey found. The increase is expected to be 1.9 percent for corporate office employees and 2.4 percent for restaurant managers.
In a separate report looking at how the restaurant industry was responding to the downturn, People Report in February surveyed foodservice companies across all segments about their plans for the recession.
Of the 111 companies responding, 88 percent said they had reduced, or expected to reduce, the number of units opening, their restaurant staffing levels or incumbent salary increases and bonuses.
However, when it came to compensation, most companies trimmed salaries, rather than eliminating bonuses, to keep in place incentives for performance.
At Yard House, that was the case when Herrmann announced the merit pay freeze in the first quarter.
In June 2008, same-store sales for the casual-dining chain were up 3 percent, even as others in the segment were already suffering.
However, by the end of the year—after the October meltdown that threw consumers into a malaise—Yard House’s sales began to flatten. By January, they were drifting into negative territory.
“We like to say we were the last ones to go over the waterfall,” Herrmann said.
Concerned about what 2009 would bring, Herrmann scheduled three big meetings to reassure employees that the company was committed to zero layoffs. Instead, Yard House put a freeze on merit pay increases for salaried and corporate office employees until the company had a better picture of what was ahead.
At the same time, Herrmann and founding partners Platt and Jocson took pay cuts and agreed to forego bonuses for the calendar year “to convey a sense that we were all in this together.”
The company continued offering bonuses to other employees, however, and because the chain exceeded goals in terms of managing costs, bonuses were even more generous than in past years, he said.
Now, largely because the chain has exceeded its budget goals, merit pay increases are back in place for most restaurant-level employees, though not yet for general managers and regional managers—though they continue to receive bonus pay.
“We didn’t want to put our foot right back on the gas pedal,” Herrmann said.
To date, same-store sales are down about 7 percent for Yard House, but sales overall are up because the chain is continuing to grow, Herrmann said.
By the end of the calendar year, Yard House will have 25 units, including two new restaurants in Texas for the first time. Location No. 26 is under construction in Massachusetts and scheduled to open in February.
Nonetheless, Herrmann said, merit pay increases will be muted somewhat going forward.
“While we’re not as aggressive [with merit pay] as we were in prior years, we’re also not as cautious as we were in the first quarter,” he said.— [email protected]